How TRID Will Affect Lenders' Processes, Volume in 2016

Mortgage originators will spend much of 2016 working their way through the hiccups caused by the October implementation of new mortgage disclosures, but those problems are unlikely to have a meaningful impact on loan origination volume next year.

“I expect origination volumes to be flat to slightly down because of some of the other things going on in the market today,” said Brian Benson, chief executive officer at closing cost data provider ClosingCorp. “I don’t know that the regulatory changes are appreciably going to change industry volume.”

While total mortgage volume may decline somewhat, purchase mortgage volume is expected to increase over 2016. Frank Nothaft, the chief economist of CoreLogic, predicted a 10% increase in purchase dollar volume, driven by improved home sales and higher prices. He said he expects the rate of price increases to flatten out as the year goes on.

Another driver of higher purchase volume is the projected continued decline in the percentage of all cash home sales. In the post-crisis years of 2009 and 2010, approximately 40% of sales were cash. That has fallen to around 24% now and is expected to go even lower in 2016, Nothaft said. He sees $1.38 trillion in originations next year, down from $1.55 trillion for this year; a similar projection to one offered by Fannie Mae.

While the new disclosures are unlikely to dramatically affect originations, the overall regulatory market will have some effect on originators and buyers of mortgages.

In the last purchase market, the largest share of originations came from mortgage brokers, said Rick Seehausen, CEO of outsourced services provider LenderLive.

For next year, “I think the jury is still out on who the winners are going to be in a purchase market. Due to regulatory changes, the mortgage broker market size is considerably smaller now,” he said.

Still, the new Truth-in-Lending/Real Estate Settlement and Procedures Act integrated disclosures are expected to impact lenders’ processes, even if volume remains relatively steady.

“We don’t think you’ve yet seen what the full impact of TRID will be. We don’t know yet if it will slow down the closing process,” said Sharon Matthews, CEO of online document provider eLynx. However, some loan officers have been complaining about process-related delays that have held up their first closings under TRID.

Lenders are still adapting to the change from both a process and technology perspective; some pulled back on business in October to reduce their risk, she said.

The lenders ComplianceEase has spoken with still are using semi-automatic or manual processes.

“So going into 2016, getting the workflow optimized for their operations, finding the right technology for their operations” is really important, said president John Vong.

TRID was not an easy deployment and there are a lot of different interpretations on the final rule, he continued.

But the industry hasn’t received much guidance from the Consumer Financial Protection Bureau on implementation, said David Shirk, an attorney with LotsteinLegal.

The industry is now in the “third wave” of questions regarding TRID. The first wave was from the lawyers and trade associations when the rule came out and the second was from the software vendors.

Now the lenders (especially the smaller ones) have their own questions, he said. “You can miss things. When you have transformational changes taking place, there’s a real need for answers to additional questions” that lenders were not prepared for.

CFPB is still only giving unofficial guidance on most TRID questions. “We answer a lot of questions for our clients based on the principles in the law but it is not based on direct guidance. And there are some gaps,” Shirk said.

Despite a pledge from the CFPB to take into account “good faith” efforts by lenders to comply, institutions still worry about what enforcement actions the agency might take.

It’s not “you should start behaving differently, it says you should have been behaving differently all along,” Shirk said.

Post-implementation, systems and processes remain a long way away from being efficient.

“So lenders have to turn their attention towards innovation to lower the cost to produce a loan. The cost to produce that mortgage has grown several fold from where it used to be 10 years ago,” Seehausen said.

Benson’s clients are saying closing a loan “is a lot more arduous than it was in the past.” On the bright side, “the great thing about all of this is that it challenges innovation.”

That could be the difference between being profitable or not as total origination volume decreases, Vong said.

“In order for an originator to be profitable in a down year, they need to make sure they are making money on every loan. [They must] make sure the data is correct and the loan is originated in compliance so there is less repurchase risk.”

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